AHEAD OF THE CURVE: Africa's accelerated development

06 September 2013 |

Increased international bandwidth at the shores has seen African service providers seek smarter ways to cross borders, cut costs and diversify.

Africa is one the world’s fastest-growing regions. It has more than one billion people, a collective GDP per capita of $953 and 26 countries that have achieved middle-income status, according to the African Development Bank Group (AfDB).

“Absolutely central to this growth has been the improvement in high-speed connectivity, brought about by a significant uplift in international submarine capacity,” says Mike Last, director, marketing and international business development, WIOCC.

“This is being delivered through new, high-capacity cables and upgrades to existing systems, and a substantial increase in Africa’s terrestrial fibre networks,” he adds.

“WACS was the first new cable to run the length of the West African coast since SAT-3 came up in 2002,” says Paul Brodsky, senior analyst at TeleGeography.

“Major players with big bandwidth demands are consortia members of WACS. We’ve seen companies turning up 20Gbps of capacity in one foul swoop.”

The other major story, says Brodsky, has been the development of the continent’s terrestrial networks.

“Liquid Telecom for example, is building a terrestrial network connecting Zimbabwe, Zambia and the DRC. It has turned up 10Gbps terrestrial circuits, which is an enormous step change in available bandwidth for the landlocked countries.”

Moving inlandLiquid’s single fibre network spans 13,000km, from the top of Uganda down to Cape Town in South Africa. It establishes multiple companies and networks locally in bordering countries, so it owns both sides of the network and avoids IRU issues.

It recently crossed from Kenya into Tanzania, and will be the first to connect up Nairobi, Dar es Salaam and Kampala.

“We only connect to subsea backbone in countries where there are multiple connections, and then distribute inland using high-capacity links,” says Liquid’s CTO Ben Roberts.

“We realise ROI by running multiple services across the same network: voice, GSM backhaul, MPLS-type services for enterprise customers, bulk capacity internet for ISPs and telcos, and broadband and FTTH for consumers.”

“We saw the opportunity to integrate available terrestrial infrastructure, which has often been built to address a very narrow market need, to deliver the large quantities of subsea capacity now available to landlocked countries,” says PCCW Global’s CMO, Mike van den Bergh.

“Working in this fashion, we have managed to deliver significant capacity, carrying voice, data and internet traffic to countries such as Zambia, Malawi, and the DRC,” he adds.

Shareholders in WIOCC have also been working to improve access to landlocked countries, linking national fibre networks and reducing backhaul costs.

“Both African and international telcos are investing to secure capacity on multiple systems, but managed by a single supplier,” says WIOCC’s Last.

“This gives them the triple benefit of capacity on multiple systems, with volume-based pricing, whilst simplifying their supply chain and operations.”

Cross-border bottlenecksDespite the inroads being made, markets where incumbents are monopolists are proving bottlenecks, while increased capacity on the shores has seen an oversupply of bandwidth impacting on the business case for terrestrial fibre builds.

“The lack of openness or the non-availability of common-carrier type networks are the same thing, because if the capacity were available on an open-access-based system close to the border, I am sure there would be entrepreneurs interested to take it across the borders if they could get the licences,” states Funke Opeke, CEO, MainOne.

“We’ve had to change strategy a little and expand our scope to ensure we achieve the ROI. We’ve become more of a solutions provider to institutional customers, applying the 80/20 rule and expanding into new areas with fibre and metro Ethernet services.”

According to Dobek Pater, director and analyst at Africa Analysis, independent cable operators such as Main One and Seacom are now looking to build out networks inland to stimulate demand, rather than rely on domestic carriers.

He also warns that for domestic and terrestrial carriers in more competitive markets, the business case for deployment of national networks will not be as rosy as it was before.

“The new submarine cables have arrived at a time of a price war and are lighting up significant capacity to remain cost competitive,” he says.

“There are instances where capacity is selling almost at cost, or with very low profit margins of about 10%. In South Africa, there has also been a significant decrease on the retail cost of enterprise links due to growing competition on domestic long-haul routes. We will see this more across Africa.”

Thinking laterallySome national carriers operating TDM networks are moving towards NGN deployment, which allows them to move traffic around more efficiently. But given the capex required, some are instead employing a build or buy approach.

“When they need to deploy a new link, carriers will consider whether it makes more sense not to incur the capex and instead incur opex via partnering,” continues Pater.

“They’ve become more cost conscious and are looking at smart ways to exploit what is already available and to save money. One example is African service providers who operate in multiple markets and swap capacities and provide each other with access to their respective networks. It’s about thinking more laterally to help each other to the benefit of both.”

Tata Communications, for example, owns South Africa’s second national operator Neotel, which is an anchor client for numerous submarine cables, and works with partners by taking capacity from them and overlaying services.

“We enhance their infrastructure either with international offerings or more sophisticated services not already available in their market,” says Tata’s VP for managed network services, James Walker.

“We are also exploring potential options with O3b for fibre resiliency in countries with only one cable landing on their coast, as well as mutual product plans for enterprise services.”

Part-owned by Google, O3b plans to launch a new constellation of satellites providing up to 1Gbps of capacity and 130-140 milliseconds of roundtrip delay. Walker says O3b should start to be deployed over the next six months, with the constellation due to go in during the second half of the year.

In Africa, satellite and microwave still have a major role to play. Liquid is seeing demand for its VSAT broadband services rise as a solution for businesses located outside of central business districts. Operators are also deploying advanced microwave solutions offering up to 1Gbps connectivity.

“The challenge now is last mile, and about the access technology to deliver all of this to the customer,” says Liquid’s Roberts, who believes content localisation will also be critical.

“The internet itself is not just a carrier network, but a content delivery network, so more content could and should be localised.”

Investor confidenceTata’s Walker agrees. “As FTTH increases, there will be the expectation to have local content in local data centres, and cloud services too. Yet currently there is no pan-African or regional carrier-neutral data centre operator, so I expect consolidation in this space over the next year or so,” he says.

According to Walker, confidence remains high.

“In the last month we brought up seven new PoPs in Africa alone. Another five are planned through the bounce of this year. We have invested $500 million into cable systems and PoPs outside of South Africa, and in South Africa itself we’ve put in some hundreds of millions of dollars too. Neotel is moving towards being profitable, and certainly we’ve seen Ebitda positive and should be cash positive soon too,” Walker says.

For carriers, one of the flipsides of more capacity, aside from falling prices, is that the impact of outages becomes more pronounced.

“One of the early lessons we learnt was that we needed to provide a resilient service via multiple paths into landlocked countries,” says PCCW’s van den Bergh.

“Historically, these countries had been served by satellite links which, although more expensive than terrestrial links, were highly reliable and not susceptible to the same risks as terrestrial cables, such as cable cuts, theft and remote power issues.”

On whether carriers are seeing ROI in the region, van den Bergh is pragmatic.

“Everyone’s business model is different. But I can say that as PCCW Global and Gateway, we are very happy with the way our business is developing. The growth is there, and there are many new opportunities coming up all the time,” he explains.

Potential investors must still do their homework, however.

“Whoever is investing needs to understand the market and have the capacity and flexibility to change and evolve their strategy based on market feedback,” adds Opeke.

“This is something publicly-listed companies are not always able to do that easily. It is a very new and emerging market and you need to be able to evolve in line with what the market will buy, what you can deliver efficiently and what people are willing to pay for.”